What happened.In 1992, DOL sued the agency, Gotham Registry, for violating the Fair Labor Standards Act (FLSA)--specifically, failing to pay the nurses the time-and-a-half rate for hours worked beyond 40 per week. Gotham agreed 2 years later to a consent decree in which it would pay time-and-a-half. But, as a judge later colorfully described, circumstances conspired to make it close to impossible for the agency to comply.

Late in 2004, DOL--in the person of its Secretary, Elaine Chao--sued Gotham for contempt of court, seeking back pay for nurses plus interest, since January 1, 1999. Gotham denied violating the consent decree and asked the district court to vacate the decree's injunction because of changed circumstances. The district court ruled in March 2006: It did not hold Gotham in contempt, and it denied Chao's petition. She appealed to the 2nd Circuit, which covers Connecticut, New York, and Vermont.

What the court said. Appellate judges related these facts about Gotham and its nurses: When a hospital requests nurses from Gotham, the agency cannot supervise the nurses in any way, nor can it even visit the hospital. Gotham nurses fill out agency timesheets, which they give to the hospital for approval, so Gotham cannot verify the hours. After the consent decree, Gotham paid for overtime that was not covered by hospital payments--an increasingly expensive proposition as demand for scarce nursing services skyrocketed. So Gotham printed on timesheets, "You must notify GOTHAM in advance and receive authorization from GOTHAM for any shift or partial shift that will bring your total hours to more than 40 in any given week."

Gotham reported the results of that effort: Only the occasional nurse asked by a hospital to work overtime calls Gotham for permission, and three out of four of those requests are denied. And, when Gotham negotiates with a hospital for an enhanced payment to cover overtime, it succeeds only 10 percent of the time. So judges again denied Chao's petition and refused to penalize Gotham. Chao v. Gotham Registry, U.S. Court of Appeals for the 2nd Circuit, No. 06-2432-cv (1/24/08).

Point to remember: This ruling is a special-circumstances exception: Employers who do supervise their nonexempt employees cannot legally refuse to pay them time-and-a-half, even for overtime worked without approval.